Will Civil Unrest Impact Financial Markets?Submitted by Reby Advisors | Certified Financial Planners | Danbury, CT on June 12th, 2020
By Patrick Doherty, CFP®, June 12, 2020
Your money matters during times of peace... and times of civil unrest.
If there’s one certainty right now, it’s that we’re living in uncertain times. For the good part of the year, the COVID-19 pandemic made us worry primarily about our health – and to a lesser extent, our financial security.
Now, civil unrest may be stirring up concerns about the future of our nation. Does civil unrest also impact the economy and financial markets? Why did the market drop nearly 7% on Thursday, June 11th?
Here are answers to some common questions:
Does civil unrest impact financial markets?
Historically, civil unrest in America doesn’t appear to impact the stock market negatively. This is confirmed based on data from the past 50 years. In a Barron’s report, analysts looked at previous periods of civil unrest including:
- JFK’s assassination
- 1965 civil rights march in Selma
- 1967 Vietnam War protests
- 1968 assassination of Martin Luther King Jr.
- 1992 L.A. riots that took place in response to the acquittal of the officers on trial for the treatment of Rodney King
In the report, analysts found that the stock market didn’t see much volatility in response to these events. In fact, the S&P 500 rose in each of these years with annual gains (excluding dividends) of 4% to 20%. The average stock market gains during these times were 12%.1
This doesn’t mean that unrest could never impact financial markets, but in the last several decades, it hasn’t.
What caused the S&P 500 to drop nearly 7% on Thursday?
Most analysts attribute the volatility to concerns over rising cases of the novel coronavirus, which is consistent with statements made by Chair of the Federal Reserve, Jerome Powell on May 29th:
“We of course would continue to react [to a second outbreak],” Powell said. “We are not close to any limits that we might have, I would say ... but I would worry almost more that a second outbreak would undermine confidence.”2
Much of the economic impact of COVID-19 was largely a result of the government response – an economic lockdown. However, President Trump stated the U.S. wouldn’t shut down in the case of a second wave.3
Could the protests lead to an outbreak that rocks markets?
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases and member of the White House coronavirus task force, recently expressed concern, saying the virus could spread at a demonstration in the same way it could at any large gathering.4
Moreover, as public attention shifts from the coronavirus to politics, could we lose focus on social distancing and curbing the rate of infection? I don’t know the answer, but I certainly hope not.
If protests impact the election, could that affect the market?
According to The Lines, Vegas odds have been impacted.5 On sports betting websites, people have begun betting on who will win the 2020 Presidential election.
Thankfully, the stock market doesn’t react like Vegas.
As it’s an election year, one question that always arises is whether markets perform best during Democratic or Republican presidencies. If the protests impact the 2020 election, new policies regarding income tax rates, corporate tax rates, tariffs, international trade, entitlement programs, and environmental regulations could indeed impact the economy – and financial markets – in the long run.
While it’s true that history shows certain turning points in economic policy that have impacted growth… as long as people remain economically free and human ingenuity is allowed to flourish, then economic growth generally ensues.
In fact, both Republicans and Democrats have occupied the White House during times of substantial gains, and even net losses, in the stock market.6 The charts below from macrotrends.net illustrate the performance of the Dow Jones Industrial Average since World War II during Republican and Democrat Presidencies.
Dow Jones Performance During Democrat Presidencies
Dow Jones Performance During Republican Presidencies
As examples, the stock market had net losses during the Nixon (R), Carter (D), and younger Bush (R), Administrations. On the other hand, the stock market saw gains exceeding 120% during the two-term presidencies of Eisenhower (R), Reagan (R), Clinton (D), and Obama (D). 6
Occupants of the White House aside, patient and disciplined investors with a long-term focus have benefited from the market’s near-permanent advance since WWII.*
Reby Advisors Can Help You Through Uncertain Times
At Reby Advisors, we strive to help clients prepare for anything. If you need financial advice, we will review your current portfolio, financial plan, and risk profile to help you decide if any changes are necessary. Please do not hesitate to contact us.
*Disclaimer: Past performance is not a guarantee of future results.